Gold, along with other metals and minerals, is typically the gauge by which analysts determine the overall status of the global market. With successful elections recently taking place in Greece, some analysts feel that the international gold sector could be bouncing back, despite some speculation that China's demand for gold could be dropping. AngloGold Ashanti Limited (AU) is bracing for this and has made some very strategic moves to combat this potential decrease in demand. This gold giant is bouncing back from the global Recession, and now is the time to look into this buy.
The company is working hard to improve its returns to shareholders. AngloGold Ashanti is currently trading at 22% below its 52 week high and 22% above its 52 week low. The stock is trading in the middle of its 52-week range, and it is looking at significant growth opportunities in the future.
The company has recently been expanding by partnering with a Dubai investment group, Thani Ashanti, and a London based company, Stratex International, to start exploration and development for gold in the Pandora region. This venture is looking like a pretty profitable one, with sample drilling in East Africa showing that there is definitely high grade gold in the area. Joint ventures in these economic times are extremely smart maneuvers by companies. If the project were to fail, AngloGold Ashanti would not suffer one hundred percent of the losses or get caught holding all of the risk.
AngloGold Ashanti and industry competitors BHP Billiton (BHP) and Rio Tinto (RIO) are all headed in the right direction to keep their financials strong. BHP has seen an increase in sales productivity as well as an increase in dividend yields. For the shaky gold economy, this is impressive, and analysts are in fact only skeptical of the market, not BHP at all. Rio Tinto has successfully dodged all attempts by BHP to acquire it, and the company is remaining strong simply because of its strategic moves in standoffs and other warfare. Its forward P/E is extremely attractive at 6.5. AngloGold, BHP, and Rio Tinto are all looking to expand their exploration into more countries, which is a necessary maneuver in Recession recovery.
Competitor Freeport-McMoRan (FCX) is moving in the exact opposite direction, however, and this is not going to bode well in the future. 70% of Freeport-McMoRan's production is in copper, and with an international decreasing demand for copper, this is going to cause the company to suffer down the road.
Other major gold competitors such as Goldcorp (GG), Newmont Mining (NEM), and Barrick Gold (ABX) have attempted to brace themselves for the potential Chinese decrease in demand. All seem to be doing better than Freeport-McMoRan. Analysts like Goldcorp because the company has been historically dominant, and its production is set to increase by 70% over the next few years. This is a prime example of a company that has responded to the Recession and Chinese decrease in demand by bracing themselves and making strategic moves forward.
AngloGold Ashanti is also in the market to purchase the Tanzanian Royalty Exploration. This particular region in Africa has seen substantial growth in the exploration and discovery of high grade gold. The cost of extraction will be low in this case. Ever since the announcement came that AngloGold Ashanti was looking to acquire this, its profitability increased. This, combined with the relatively small size of the company, makes them look good for the upcoming bidding war for this property.
Earlier this year, the company reported earnings that surpassed expectations for the first quarter. This is all due in part to higher gold prices, improved margins, and a $90 million net tax credit. In the United States exchange, the South African based company saw earnings per share increase by 46%. At this current pace, the company will only continue to grow in value. As for the company's competitors, companies
First quarter results for the company also saw the stock rising with adjusted earnings of $429 million. This is about $1.11 per share, which more than doubles the earnings for the same quarter of the previous year. With a current market cap of 13.14 billion and a dividend yield of 0.12/1.38, AngloGold Ashanti is definitely in a good spot right now. Despite being a relatively smaller company, AngloGold Ashanti is definitely one of the gold powerhouses right now.
AngloGold Ashanti is also set to increase its annual attributable production through acquiring 100% ownership of the Serra Grande mine in Brazil. Previously, AngloGold Ashanti had only owned 50% of the stake in the mine, but the company has now purchased the remaining half from competitor Kinross (KGC) for $220 million U.S. dollars. Kinross has been some trouble lately - from an investigation into shareholders for violating securities laws to some horrible acquisitions - so they had to sell their share of the mine to gain some money back. Kinross is trading well below competitors Newmont and Goldcorp.
In 2011, the Serra Grande mine produced 134,000 ounces of gold at a cost of $767 per ounce. To date the mine has produced 3.4 million ounces of gold. This will drastically improve AngloGold Ashanti's gold production. Annual production from Brazil operations is expected to increase from 428,000 ounces in 2011 to somewhere between 540,000 ounces and 550,000 ounces. Competitor Vale (VALE) is not having as many successes in South America, as the company is in conflict with the Argentinean government over stricter gold mining regulations. However, this highlights a deeper problem for Vale with its inability of corporate management to deal with obstacles in production. It also shows a contrast between Vale and AngloGold, mainly in AngloGold's ability to deal problems as they arise.
AngloGold Ashanti is also looking to expand its work in the North American market as well. The company is on track to invest in the Creek and Victor mine in Colorado. This will boost annual gold production by 400,000 ounces, and this trend is expected to continue until well in to 2025. Production is expected to drop after that, but drops will not be substantial until at least 2035.
Tragedy struck at the company's Moab Khotosong mine last week in South Africa when a driller was hit by ground fall and died. Drilling and blasting were suspended for the time being, but analysts do not believe that the mine should be out of commission for very long. This is the fourth death at an AngloGold Ashanti mine this year. Freeport-McMoRan has also dealt with catastrophe at its largest mine, Grasberg, in Indonesia. Violence and labor disputes have hindered and flat out halted production, thus harming the copper giant.
The efforts of AngloGold Ashanti to increase its international mining presence will bode well for the future of the company. This increase in its footprint should increase value. Hopefully this will also lead to an increase in returns to shareholders and boost higher stock prices per share.
There is no question that the gold markets are still in flux right now. Just last week the gold market posted a 3.8% decline, the worst of the year so far. There has been high selling pressure in the precious metals market as deflationary fears made their way around the globe. Europe remains relatively calm for the moment following Greece's election, but uncertainty is still huge about the financial wellbeing of the euro zone. Everyone remains concerned about this debt situation. This, combined with the lack of a third quarter announcement from the Federal Reserve and generally disappointing financial economic data has spiked some fears of deflation.
That being said, AngloGold Ashanti is currently at its lowest trading price in ten years. And its outperformance in Q1 of 2012 shows that, despite a 6% decline in production to 981,000 ounces of gold produced, the company was able to do well. According to analysts, AngloGold Ashanti is a top pick among gold companies right now. The market may still be in trouble, and no one is entirely sure about when this fix will occur and where it is heading, but AngloGold Ashanti is proving itself stable and strong despite the uncertainty. And any company that can do that in these turbulent economic times is one that you should definitely keep your eye on. AngloGold Ashanti is poised for some great growth. I urge investors to strongly consider buying this stock now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.